Classification of Receipts

CLASSIFICATION OF RECEIPTS

Revenue Receipts

Receipts that do not result in a claim against the government are known as revenue receipts. As a result, we refer to them as non-redeemable.

Revenue receipts are from tax and non-tax sources. For a considerable amount of time, taxes have been separated into two categories: direct taxes, such as personal income tax and corporation tax, and indirect taxes such as excise duties (which are levied on goods produced domestically), customs duties (which are taxes imposed on goods imported into and exported from India), and service taxes. Some direct taxes have been referred to as “paper taxes” because they have never generated significant revenue, such as the gift tax. Estate duty and wealth tax have since been abolished in India.

The primary sources of non-tax revenue for the central government are interest payments from loans it has given, dividends and profits from investments it has made, and fees and other payments received in exchange for services provided. Included are monetary grants-in-aid from international organizations and other nations.

Tax Revenue

The term “tax revenue” refers to the money received from social security contributions, payroll taxes, taxes on the ownership and transfer of property, taxes on income and profits, and other taxes.

The Union Budget’s Annual Financial Statement includes the Tax Revenue, which is a component of the Receipt Budget.

The comprehensive report provides information on the various forms of revenue collected, including corporation tax, income tax, customs, union excise, service, and taxes on Union Territories such as land revenue and stamp registration. Tax revenue includes the sum of all direct and indirect taxes collected.

Governments impose taxes on their people in order to raise funds for initiatives aimed at improving the nation’s economy and raising the living standards of its populace.

The Indian Constitution, which gives the Central and State governments the right to impose taxes, is the source of the government’s ability to do so. Every tax imposed in India must be supported by a corresponding legislation enacted by the State Legislature or the Parliament.

Types of Taxes

There are two different kinds of taxes: direct taxes and indirect taxes. The manner in which these taxes are imposed differs. Some taxes like corporation tax, income tax, etc are paid by you directly, while other taxes like the goods and services tax, service tax, sales tax, etc.are paid indirectly.

However, in addition to these two traditional taxes, the Central Government has implemented additional taxes in order to further specific goals. Both direct and indirect taxes are subject to “other taxes,” i.e. cess and surcharges which include Krishi Kalyan, and Swachh Bharat cess, among others.

Direct Tax

As previously mentioned, direct taxes are those that you pay directly to the government. These taxes cannot be passed on to another person or organization; they are imposed directly on the subject. The Department of Revenue’s Central Board of Direct Taxes (CBDT) is one of the organizations that overlook these direct taxes.

EXAMPLES OF DIRECT TAXES

Income Tax

It’s the tax that you pay on the money you make during a fiscal year. Income tax has many different aspects, including tax slabs, taxable income, tax deducted at source (TDS), and taxable income reduction. Companies as well as individuals are subject to the tax. The tax that an individual must pay is determined by the tax bracket in which they are placed. This bracket, also known as a slab, ranges from no tax to 30% tax for high-income groups, depending on the assessee’s yearly income.

The government has established distinct tax brackets for distinct categories of individuals, including general taxpayers, senior citizens (those between the ages of 60 and 80), and very senior citizens (those over the age of 80).

Capital Gains Tax

You must pay this tax each time you get a substantial sum of money. It might come from a real estate sale or an investment. It typically comes in two kinds: long-term capital gains from holdings longer than 36 months, and short-term capital gains from holdings shorter than 36 months. Since the tax on short-term gains is determined by your income bracket and the tax on long-term gains is 20%, the applicable taxes for each are also significantly different. The most interesting feature of this tax is that the gain isn’t always required to be monetary. An exchange in kind is another possibility, in which case the exchange’s value will be taken into account for the purposes of taxation.

Securities Transaction Tax

A type of turnover tax known as the Securities Transaction Tax requires investors to pay a small tax on the total sum they receive or pay in a share transaction. Since the levy is imposed at the source, its goal is to reduce tax evasion. STT covers exchange-traded funds, mutual funds, stocks, futures, and options. The STT that applies to an intraday transaction will differ from that which applies to a delivery transaction. Because a broker is involved and collects STT from clients, it is occasionally regarded as an indirect tax.

Perquisite Tax

All benefits or privileges that employers may grant to staff members are referred to as perquisites. These benefits could include a house that the company provides or a car that the company lends you for use. These benefits can include things like reimbursement for gas or phone bills. Finding out how the benefit was obtained by the business or utilized by the employee is how this tax is assessed. When it comes to cars, it might be the case that a vehicle given by the business and used for both official and personal reasons qualify for tax benefits while a vehicle used exclusively for official reasons does not.

Corporate Tax

The income tax that businesses pay on their earnings is known as corporate tax. Additionally, this tax has a separate

slab that determines the amount of tax the business must pay. For instance, a domestic business with annual revenue of less than Rs. 1 crore is exempt from paying this tax; however, a business with annual revenue of more than Rs. 1 crore is subject to paying this tax. It is also known as a surcharge, and the amount varies depending on the income bracket. International businesses are subject to a different system, with a corporate tax rate of 41.2%, if their revenue is less than Rs. 10 million and so on.

There are three different types of corporate tax.

• Minimum Alternative Tax: The Income Tax Department uses Minimum Alternative Tax, or MAT, as a means of requiring businesses to pay a minimum tax, which is currently set at 18.5%. Section 115JA of the Income Tax Act was introduced, bringing this type of tax into force. Companies operating in the power and infrastructure sectors are not required to pay MAT, though.

• Fringe Benefit Tax: The tax known as the Fringe Benefit Tax, or FBT, was levied on nearly all fringe benefits that employer offered to their staff. These include: employee welfare, lodging, entertainment, and employer-sponsored travel expenses (LTA) etc.

• Dividend Distribution Tax: Following the conclusion of the 2007 Union Budget, the Dividend Distribution Tax was implemented. In essence, it is a tax based on the dividends companies give investors. The gross or net income an investor receives from their investment is subject to this tax.

Indirect Tax

Indirect taxes are by definition those imposed on products or services. In contrast to direct taxes, which are imposed on an individual and paid to the government directly, indirect taxes are imposed on goods and are collected by a middleman, the person who sells the good. Value-added tax, sales tax, import goods taxes, and other levies are examples of indirect taxes.

EXAMPLES OF INDIRECT TAXES

Sales Tax

Sales tax is a tax imposed on the sale of a product, as the name implies. This product may be an import, something

made in India, or it may even cover services provided. This tax is imposed on the product seller, who then passes it along to the customer by adding the sales tax to the product’s price. This tax’s restriction is that it can only be applied once to a single product, so sales tax cannot be applied to a product that is sold twice.

Service Tax

Services rendered in India are subject to service tax in the same way that sales tax is added to the cost of goods sold there. It is collected either monthly or quarterly, depending on the nature of the services rendered, and it is not applicable to businesses that sell goods but rather to those that offer services. The service tax is only paid after the client settles the bills if the business is an individual service provider. Regardless of whether the customer pays the bill or not, businesses must pay the service tax at the time the invoice is generated.

Value Added Tax

VAT, commonly referred to as commercial tax, is not applied to goods that are classified as exports or as zero-rated (such as food and necessary medications). This tax is imposed at every point in the supply chain, from the producers, retailers, and distributors to the final consumer.

Custom duty & Octroi: Customs duty is the price that is imposed on goods that are purchased and need to be imported from another nation. It is applicable to all goods arriving by air, sea, or land. Octroi is intended to guarantee that goods crossing state borders within India are taxed appropriately, much as customs duty ensures that goods for other countries are taxed. It is imposed by the state government and operates similarly to customs duty.

Excise Duty: This tax is applied to all products that are produced or manufactured in India. It is also referred to as the Central Value Added Tax, or CENVAT, and differs from customs duty in that it is only applied to goods made in India. The government collects this tax from the product’s manufacturer. It can also be gathered from organizations that purchase manufactured goods and hire workers to deliver them from the producer to their location.

Difference between Direct Tax and Indirect Tax

GST: One Nation, One Tax, One Market

The single comprehensive indirect tax on the supply of goods and services, from the manufacturer or service provider to the customer, is known as the Goods and Service Tax (GST), and it went into effect on July 1, 2017.

It is a consumption tax that is destination-based and offers supply chain input tax credit capabilities. It has a single rate for a single category of goods and services and is applicable nationwide.

A significant number of Central and State taxes and cesses have been combined by it. It has largely taken the place of taxes on goods and services that are imposed on the production, sale, or provision of goods or services.

Under the Goods and Services Tax (GST), taxes are discharged at each stage of the supply process, and the tax credit from one stage can be offset against the next stage of the supply of goods or services.

It has taken the place of several levies and taxes imposed by the federal, state, and local governments. Central Excise Duty, Central Sales Tax, Central Service Tax, and Cesses such as KKC and SBC were among the principal taxes imposed by the Centre. VAT/Sales Tax, Entry Tax, Luxury Tax, Octroi, Entertainment Tax, Advertisement Tax, Lottery/Betting/ Gambling Tax, State Cesses on Goods, etc. were the main state taxes. These are now included in the GST.

Although five petroleum products are currently exempt from GST, over time they will be included in this tax system. State governments shall maintain their VAT levies on alcoholic beverages intended for human consumption. Central Excise Duty and Goods and Services Tax will apply to tobacco and tobacco products. States also continue to retain the power to levy Stamp Duty.

On September 8, 2016, the President of India gave his assent to the 101st Constitution Amendment Act. The amendment added Article 246A to the Constitution, giving the State and Union legislatures and the Parliament the authority to enact laws pertaining to the Goods and Services Tax.

Benefits of GST

Uniform Taxation: Single tax structure simplifies business operations and promotes a standardized national economy.

Boosts Government Revenue: Broadened tax base, improved compliance, and potentially lower collection costs lead to higher revenue and a better Ease of Doing Business ranking.

Eliminates Cascading Taxes: Removes “tax on tax” effect, reducing overall tax burden on goods and services.

Easy Compliance: Online IT system simplifies registration, filing returns, and payments.

Benefits Small Businesses: Higher registration threshold (20 lakh) reduces compliance burden for small traders and retailers.

Improved Logistics: Reduced interstate check points and warehousing needs improve efficiency and lower costs.

GST Council

It is a constitutional body which offers suggestions on matters pertaining to the Goods and Services Tax to the Union and State governments. In order to make these suggestions, it gathers a lot of information from the market regarding shifts in the demand for products and services.

The Goods and Services Tax Council (GST Council)

comprises

According to the Article 279A of the amended Constitution, the GST Council comprises the following members:

Chairperson: Finance Minister.

Vice Chairperson: He/she is chosen amongst the Ministers of State Government.

Members: The Minister of State for Finance and Taxation, along with every state’s minister of finance, comprise the GST Council.

Voting takes place when at least half of the members are assembled.

The Centre has one-third weightage, whereas the States have two-thirds of the total votes cast at the meeting.

The decision is taken by a 75% majority.

The Council will offer recommendations on all matters pertaining to the GST, such as regulations and tariffs.

National Anti-Profiteering Authority

The Central Goods and Services Tax Act (2017) established the NAA under Section 171. This body safeguards consumer interests by ensuring that reductions in tax rates and benefits from input tax credits are passed on to them through lower prices. The NAA implements several measures to achieve this

• Collaboration: Regular meetings with Central Tax Chief Commissioners and Zonal Screening Committees promote consumer awareness initiatives.

• Public Outreach: A dedicated helpline addresses public inquiries related to filing complaints against profiteering businesses.

• Complaint Channels: The NAA portal and email address facilitate the submission of complaints.

• Consumer Advocacy: The NAA assists consumer welfare organizations in outreach programs.

• Investigation: It investigates potential profiteering activities by GST-registered suppliers who might be unfairly raising prices under the guise of the tax.

• Punishment: It has the legal authority to recommend punitive actions, including cancellation of registrations, against such non-compliant businesses.

Advance Ruling

An advance ruling is a formal decision issued by the GST authorities (Authority or Appellate Authority) to an applicant. This decision clarifies the applicant’s tax liability on a specific supply of goods or services, either planned (proposed) or already undertaken.

Compared to previous tax regimes, GST’s advance ruling system offers several advantages

• Broader Scope: It covers both proposed and completed transactions.

• Enhanced Certainty: It provides advance assurance on tax liability for the applicant’s activity.

• Investment Promotion: It aims to attract foreign direct investment (FDI) by ensuring certainty.

• Litigation Reduction: It seeks to minimize tax-related disputes.

• Efficiency: It emphasizes swift, transparent, and cost- effective rulings.

Revenue Neutral Rate (RNR)

RNR is the rate at which tax revenue remains constant despite crediting input duty and other factors. The tax rate that permits the government to collect the same amount of money even when tax laws change is known as the revenue neutral rate.

Inverted Tax Structure under GST

An inverted tax structure is simply one in which the tax rate on inputs used exceeds the tax rate on outputs for sale. For instance, finished goods like fabric bags are subject to a 5% GST. Non-woven fabric, a raw material used to make fabric bags, is purchased with a 12% GST.

A registered person may request a refund of unused Input Tax Credit (ITC). The ITC resulting from an inverted tax structure can be claimed at the end of any tax period in which the credit has accumulated due to the higher rate of tax on inputs than the rate of tax on output supplies. A tax period refers to the time required to submit a return.

Tax Expenditure

A tax expenditure is a government concession within the tax code that reduces the tax burden for a particular activity or group of taxpayers. It functions like a government spending program achieved through the tax system. These breaks typically come in various forms

Exemptions: Certain income or activities are entirely excluded from taxation.

Deductions: Taxpayers can subtract specific expenses from their taxable income.

Offsets: Reductions in the amount of tax owed, similar to tax credits.

Reduced Rates: Specific activities or income classes benefit from lower tax rates.

Deferrals: Delaying the payment of taxes until a later date.

It’s important to note that tax expenditures can be positive or negative. While most examples provide a benefit, some rare cases might impose an additional tax burden.